2014 Index of Economic Freedom

Armenia

overall score68.9
world rank41
Rule of Law

Property Rights30.0

Freedom From Corruption26.7

Limited Government

Government Spending81.3

Fiscal Freedom86.5

Regulatory Efficiency

Business Freedom83.1

Labor Freedom78.5

Monetary Freedom77.0

Open Markets

Trade Freedom85.5

Investment Freedom70.0

Financial Freedom70.0

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Quick Facts
  • Population:
    • 3.4 million
  • GDP (PPP):
    • $19.6 billion
    • 7.2% growth
    • 1.0% 5-year compound annual growth
    • $5,838 per capita
  • Unemployment:
    • 19.0%
  • Inflation (CPI):
    • 2.5%
  • FDI Inflow:
    • $489.1 million
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Armenia’s economic freedom score is 68.9, making its economy the 41st freest in the 2014 Index. Its overall score has declined by 0.5 point from last year, primarily due to combined deteriorations in investment freedom, business freedom, and fiscal freedom. Armenia is ranked 18th among the 43 countries in the Europe region, and its score is above the world and regional averages.

Over the 20-year history of the Index, Armenia has improved its economic freedom score by 26.7 points, the fourth largest score increase. Recording score improvements in eight of the 10 economic freedoms, including monetary freedom, management of public finance, trade freedom, and financial freedom, Armenia has advanced from economic repression 20 years ago to economically “moderately free” today. Facilitated by the broad advancement of economic freedom, diversification of the economic base has enhanced Armenia’s economic dynamism and reduced poverty.

Nonetheless, substantial challenges remain, particularly in implementing deeper institutional and systemic reforms that are critical to strengthening the foundations of economic freedom. Both the protection of property rights and freedom from corruption are far below world standards, and the legal framework continues to be weak.

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Background

Armenia achieved independence from the Soviet Union in 1991. A cease-fire in its 24-year dispute with Azerbaijan over the Nagorno–Karabakh region has been in effect since 1994, but minor hostilities continue, and Armenia’s borders with Azerbaijan and Turkey remain closed. President Serzh Sargsyan of the center-right Republican Party won re-election to a second five-year term in 2013. The economy relies on manufacturing, services, remittances, and agriculture. After a brief downturn in 2009, GDP growth resumed in 2010. The eurozone financial crisis remains a drag on the economy. The government, which relies heavily on loans from the World Bank, the International Monetary Fund, the Asian Development Bank, and Russia, as well as remittances from the diaspora, is running a modest budget deficit.

Rule of LawView Methodology

Property Rights 30.0 Create a Graph using this measurement

Freedom From Corruption 26.7 Create a Graph using this measurement

Corruption plagues such critical areas as tax and customs operations, health, education, and law enforcement. Petty corruption is widespread throughout society, and anti-corruption measures have not been enforced effectively. The judicial system, hobbled by corruption and Soviet-era underdevelopment, impedes the enforcement of contracts. Protection of intellectual property rights is poor, and scores for rule of law are below average overall.

Limited GovernmentView Methodology

The top individual tax rate has risen to 26 percent, and the top corporate tax rate remains at 20 percent. Other taxes include a value-added tax (VAT) and an excise tax. The overall tax burden is 16.7 percent of domestic income. Government spending is 25 percent of domestic income, and public debt is equivalent to about 40 percent of the domestic economy. The government hopes to narrow the deficit with a large increase in tax revenue.

Regulatory EfficiencyView Methodology

The regulatory framework is relatively efficient, and a broad simplification of business procedures has encouraged regulatory efficiency. The minimum capital requirement for starting a business has been eliminated, and bankruptcy procedures have been modernized. The non-salary cost of labor is moderate, but the informal labor market is sizable. State subsidies distort prices in such sectors as public transportation, electricity, and gas.

Open MarketsView Methodology

Armenia has a 2.3 percent average tariff rate, and non-tariff barriers are relatively low. Bureaucratic barriers and non-transparent regulations deter foreign investment. The financial sector, dominated by banks, continues to evolve. The state no longer has a stake in any bank. The banking sector, although relatively small and fragmented, has been relatively well-capitalized and is open to foreign competition.

Country's Score Over Time

Bar Graph of Armenia Economic Freedom Scores Over a Time Period

Country Comparisons

Bar Graphs comparing Armenia to other economic country groups

Regional Ranking

rank country overall change
1Switzerland81.60.6
2Ireland76.20.5
3Denmark76.10.0
4Estonia75.90.6
5United Kingdom74.90.1
6The Netherlands74.20.7
7Luxembourg74.20.0
8Germany73.40.6
9Finland73.4-0.6
10Sweden73.10.2
11Lithuania730.9
12Georgia72.60.4
13Iceland72.40.3
14Austria72.40.6
15Czech Republic72.21.3
16Norway70.90.4
17Belgium69.90.7
18Armenia68.9-0.5
19Latvia68.72.2
20Macedonia68.60.4
21Cyprus67.6-1.4
22Spain67.2-0.8
23Poland671.0
24Hungary 67-0.3
25Albania66.91.7
26Slovakia66.4-2.3
27Malta66.4-1.1
28Bulgaria65.70.7
29Romania65.50.4
30Turkey64.92.0
31Montenegro63.61.0
32Portugal63.50.4
33France63.5-0.6
34Slovenia62.71.0
35Italy60.90.3
36Croatia60.4-0.9
37Serbia 59.40.8
38Bosnia and Herzegovina58.41.1
39Moldova57.31.8
40Greece55.70.3
41Russia51.90.8
42Belarus50.12.1
43Ukraine49.33.0
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